Ad Agencies That Hide Media Rebates Could Face Legal Exposure, Trade Group Warns
09 November 2018 - 10:09AM
Dow Jones News
By Suzanne Vranica
Advertising agencies that engaged in suspect ad-buying practices
could be exposed to liability for wrongdoing such as wire fraud and
racketeering, according to the industry trade group that uncovered
the practices.
Federal prosecutors for the Southern District of New York are
investigating media-buying practices in the advertising industry
and are looking into whether agencies received rebates from media
outlets, The Wall Street Journal reported in September.
The probe stems from a 2016 investigation of the industry
commissioned by the Association of National Advertisers, which
represents big advertisers such as Procter & Gamble Co.,
General Motors Co. and Verizon Communications Inc.
The ANA study, which was conducted by corporate investigative
firm K2 Intelligence, found rebates and other nontransparent
practices were "pervasive" in the U.S.
Now, in an industry white paper released Thursday, the ANA said
if these practices are found to be fraudulent, "criminal charges
can be brought against the media buying agencies and those
executives and employees who were involved."
The report laid out federal crimes that it said are likely at
the center of the investigation, such as mail and wire fraud,
conspiracy and racketeering. The "primary" offenses likely to be at
issue are mail and wire fraud, the report said.
The 2016 ANA study found that ad agencies used the buying power
of their clients for their own benefit. It found agencies' suspect
practices included receiving cash rebates from media sellers for
reaching spending thresholds and not returning those funds to
clients.
The white paper said, "If two or more employees agreed to hide,
divert or conceal earned rebates and cause a false report to be
sent to an advertiser, a conspiracy may have taken place."
A call to the American Association of Advertising Agencies
wasn't immediately returned. The ANA study didn't name specific
companies, and ad agencies broadly denied wrongdoing when it was
released.
The ANA has said the Federal Bureau of Investigation has asked
it and its members for help with the investigation.
Doug Wood, the ANA's general counsel and partner at law firm
Reed Smith LLP, which helped write the white paper, said it was
intended to give marketers a "fuller picture on what is going on
and what is involved" if an advertiser chooses to cooperate with
the FBI.
The FBI has told Reed Smith that the probe is a long-term,
industrywide investigation. Still, the white paper said, "No one
has been accused or charged with any crimes and no one is accusing
anyone of criminal behavior."
The FBI is seeking to talk to marketers that have already
investigated their media-buying firms and have found indications of
fraud, the white paper said.
Mr. Wood is urging advertisers to review their agency contracts
and to conduct an investigation to determine if they have been
victimized. Only after that process is complete should a marketer
consider cooperating with the FBI, he said."If the government
doesn't know they were a victim of the fraud, they are not in a
position to help them collect restitution," he said
While the news of the investigation is worrisome for the ad
business, the ANA white paper said that there could be some
benefits for marketers if they cooperate, such as more transparency
in the industry and possibly financial restitution for advertisers
that have been harmed.
"If advertisers sit on the sidelines and don't engage in
self-help to determine if they were defrauded, they may lose out on
restitution down the road, if charges are brought," said Steven A.
Miller, a partner at Reed Smith and a former federal prosecutor in
Chicago.
Write to Suzanne Vranica at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
November 08, 2018 17:54 ET (22:54 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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